Giving Meaningful Money Gifts to Family | Brighthouse Financial
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  • 6-Minute Article
  • |
  • Jul 10, 2019

9 Ways to Give Meaningful Money Gifts to Family

Use these strategies to give your financial gifts lasting impact.

 5 Ways to Protect Your Finances for the Next Generation and Beyond

Created in Collaboration with Kiplinger.

The following information highlights some considerations of gifting for general informational purposes. It is not comprehensive and does not cover all situations, including with respect to all tax considerations. Any discussion of taxes in this document is for general information purposes and should not be construed as legal, tax, or accounting advice. As with all matters of a tax or legal nature, individuals should seek advice from their tax and legal advisors.


Most people want to give meaningful gifts to family members such as children, nieces and nephews, and siblings.

Beyond the latest book or gadget, however, are a variety of financial gifts that can have lasting impact. Whether it’s contributing to a child’s future education, building a charitable legacy, or even purchasing a life insurance policy, thoughtful financial contributions can be gifts that keep on giving.

Know the Basics of IRS Gifting Rules

One area to discuss with your financial and tax professionals is gifting strategies, which have special considerations and tax implications. For instance, did you know that the IRS annual gift limit for 2019 is $15,000 per individual per year? Generally, this means you can give up to $15,000 to as many recipients as you wish each year without incurring gift taxes. For example:

  • A husband and wife can each give their only child $15,000, adding up to a potential combined $30,000 gift each year.
  • A married couple could give $30,000 to each of their three grandchildren in one year, for a total of $90,000.

Financial gifting can also help reduce the size of your taxable estate and eventual estate tax liabilities. In certain instances, federal generation-skipping tax rules must also be considered, so be sure to consult with your tax and legal advisors to understand how it all fits with your goals.

Match Gifts to Needs by Age

While they’re young

1. Education savings 
Tax-advantaged 529 college savings plans and Coverdell education savings accounts are well-known savings vehicles for future college costs, but you also can contribute to these plans for private elementary, middle, or high school tuition (subject to tax law). Money from these accounts can generally be used tax-free for qualified educational expenses – such as tuition, fees, room and board, and books – up to certain limits. Earnings are generally not subject to federal income tax if they are used for qualifying expenses. Depending on where you live and the limits allowed by your state, you may receive a state income tax break for your contributions to a state 529 college savings plan. 

Bonus: Generally, you may bundle up to five years’ worth of contributions to a 529 plan – in other words, $75,000 in one year without incurring gift taxes. Money contributed to Coverdell accounts isn’t deductible and can’t exceed $2,000 in any one year (as of 2019), and the ability to contribute is limited based on an individual’s income. You can get more information in IRS Publication 970 available at IRS.gov.

2. Life insurance
You can purchase and make premium payments for a child or grandchild's life insurance policy. Commonly known as juvenile insurance, this type of coverage is typically either a whole life or universal life policy. Currently, 20% of parents and grandparents say they purchase such coverage for children under age 18.1 Benefits of purchasing while children are young can include locking in low premiums for life, guaranteed insurability in the future, and the savings aspect of cash value that may be used to supplement future financial needs. In certain instances, federal generation-skipping and other tax rules must be considered, so discuss with your advisors.

3. Custodial accounts
Established under the Uniform Gift to Minors Act (UGMA) and the Uniform Transfer to Minors Act (UTMA), these irrevocable accounts enable you to make wide-ranging financial gifts to minors, introduce them to investing, or even jump-start their retirement savings. While the accounts are set up and managed by you, ownership transfers to the child when he or she reaches the age of majority.

Keep in mind that contributions cannot be revoked once made. Also, this type of account may be considered an asset if applying for need-based college financial aid. In addition to the gift tax, these accounts may be subject to the so-called “kiddie tax” if their assets produce taxable income.2

4. Trusts
Another gifting option is setting up a trust to gift money or other assets to children while controlling how it’s invested, spent, and distributed to them. Unlike a custodial account, money held in a trust needn't be transferred to the child at any specific age. Despite its advantages, the added cost and complexity of setting up a trust means that they may not be appropriate for every situation. For example, you’ll need an attorney’s help to create one, there are multiple tax considerations, and you may also pay fees to the trustee and administrator once your trust is established. 

As they Grow

5. Stock
Gifting individual stock means that you and your recipient can track the performance of the investment together over time. Online stock trading platforms, such as Stockpile.com, make it easy to introduce children to stock ownership and even allow gift card purchases of $1 to $2,000. Because you can choose from thousands of stocks, consider personalizing your gift by investing in a company related to a child’s interests. For example, you might choose a sports-related company for a grandchild who’s a budding athlete.

Assets held in the account may be subject to income tax, including the “kiddie tax” as well as the gift tax, so speak to your tax advisor.

6. Charitable donations
Reinforce a philanthropic mindset by donating to an organization in your loved one’s name. If they’re passionate about a certain cause but can’t afford to donate themselves, this can be a heartfelt gifting strategy.

When they’re older

7. Home purchase
Consider offering down payment assistance or covering closing costs for a first home. According to the National Association of REALTORS®, 28% of homebuyers age 28 and younger and 21% of those age 29-38 receive gifts of money from a relative or friend toward the down payment on a home purchase.3 Generally, mortgage lenders will expect you to provide a signed “gift letter” that specifies the amount and transfer date of the gift and states that you don’t expect repayment.4 Such documentation and verification may vary, so talk to the lender and your financial professional for help navigating this process.

8. Help with medical costs
If a nondependent child incurs a significant medical expense that’s not fully covered by insurance, you generally can pay their bill as a gift that’s not subject to the IRS annual gifting limit. However, the payment must be made directly to the medical provider, doctor, or hospital – not to your child.

Under IRS requirements, the medical exclusion rule generally includes expenses for diagnosis, treatment, cure, and prevention of disease. It also can include amounts paid for medical insurance, such as on behalf of a child (minus any amounts paid that are reimbursed to you by an insurer). The exemption does not include expenses that are reimbursed by insurance. Also, these amounts aren’t considered gifts, so you don’t have to file Form 709 or report it if you file the gift tax form for other reasons. For more details, see IRS instructions regarding the medical exclusion rule here.

9. Donor-advised funds (DAFs)
From 2013 to 2017, the number of individual DAFs more than doubled from 218,613 to 463,622, with grant payouts to qualified charities (those to which donations are tax-deductible) surpassing 20% each year. Families can use these types of personal charitable savings accounts to work together toward philanthropic goals without the cost and administrative complexity of setting up a family foundation. DAFs are administered by many brokerage firms, mutual fund companies, and community foundations, and contributions are tax-deductible.

The growth of DAFs has soared and they are considered the fastest-growing form of philanthropy today.

Making a Giving Plan

Thoughtful financial gifts to family members can be helpful to them and fulfilling for you. Talk with your financial advisor as well as tax and legal advisors about your plans to fully understand the tax implications and legal rules that may apply. Together, you can determine which gifting strategies best accomplish your goals.

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